The Council of Mortgage Lenders (CML) has called on the Bank of England to cut interest rates sooner rather than later.
It says the Government and the Bank needs to “consider how best to unblock the funding logjam that some UK lenders are experiencing”.
The Bank of England's Monetary Policy Committee meets next week for its regular monthly meeting to set interest rates, which currently stand at 5.75%.
The CML monthly report reads: “November's Inflation Report appears to anticipate at least two 0.25% interest rate cuts next year.
“But, earlier and more decisive action may be needed.
“We would like the government and the Bank of England to consider how best to unblock the funding logjam that some UK lenders are experiencing, so that they can continue to fully meet consumer demand.”
The Bank's Governor, Mervyn King, has already announced that he will make extra funds available to the banking system between now and the end of the year, to ensure that banks have enough cash.
And in the past week two lenders - the Bradford and Bingley and the Alliance & Leicester - have managed to strike deals with other banks to raise billions of pounds in extra funds.
The CML points out that the public saved an extra £45bn with its members in the past year.
But that is only half the £90bn in extra mortgage lending that it expects to see in 2008.
If that gap cannot be made up by lenders borrowing in the wholesale markets, it says, the mortgage tap may be turned off.
“Firms have various other options, including the ability to influence the volumes of new lending business they write in line with their funding pipeline,” the CML says.
“But, the overall impact is to limit the availability of mortgage credit and to raise its cost for prospective borrowers.”
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